Why is a life insurance policy important?

A life insurance policy will essentially replace your income and render financial support to your family in your absence. The type of life insurance policy you need may be quite different from the need of another individual.

When do you need a life insurance policy?

If you have a number of dependents and if your paycheck supports payment for recurring expenses in the household, you will essentially need a life insurance policy.

How much life insurance is needed?

There is no standard format for deciding how much insurance is needed. It differs from one person to another and also on the needs of an individual. It will depend on factors such as:

• Your monthly income

• The amount you shell out every month for paying off debts

• Number of dependents

• Your lifestyle etc

Once you have decided that you will need a life insurance policy, the next step is to find out the type of life insurance policy that will be appropriate for you.

Term insurance versus whole life insurance

There is a constant debate regarding the usefulness of both these policies. There are few that believe if you are below 40 years and you don’t have dependents to look after or if you are not suffering from any life threatening illness, it is better to opt for term insurance policy. Term insurance policy doesn’t offer cash value but extends death benefit.

On the other hand, whole life insurance offers both cash value as well as death benefit. These are more expensive as compared to the term insurance policies. And it has been observed that in majority of the cases, the whole life insurance policies are surrendered within 7 years after the policy takes effect.

How much will a life insurance policy cost?

The cost of your life insurance policy will depend on a number of factors. These may include:

• How much life insurance you are buying

• The policy type

• How much the agent gets as commission from the insurance carrier?

• Cost of underwriter practices etc.

In addition to the ones mentioned above, the cost of your life insurance policy will also depend on the coverage you avail. And if you smoke or if you are overweight, you will have to pay more. You also pay more if your occupation involves a lot of risk.